Kiwi and Aussie Diverge While Buck Drops

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Market Drivers November 2, 2016
Kiwi bid in hot NZ data
EZ Business Confidence improves
Nikkei -1.76% Dax -1.30%
Oil $46/bbl
Gold $1295/oz.

Europe and Asia:
NZD NZ Employment 4.9% vs. 5.1%
NZD NZ Inflation expectations 1.7%
AU Building Home Approvals -8.7% vs. -3.0%
EZ GE Unemployment -13K vs. -1K

North America:
USD ADP 8:15
USD FOMC 14:00

Asia session trade saw an unusual decoupling between the kiwi and the Aussie today, with the former rising steadily through the 7200 figure backed by strong eco data while Aussie slid lower all night long dogged by weak housing data.

The employment news from New Zealand proved to be much better than forecast with unemployment rate slipping to 4.9% from 5.1% eyed while the participation rate rose to a torrid 70.1%. Inflation expectations remained in line at 1.7% showing no deflationary pressures.

With dairy prices on the rise and some of the best economic growth in the industrialized most analysts have concluded that RBNZ really does not need to lower rates in November, although most still believe that the central bank will do so, simply because it has already committed to that path of lower rates. Still even under that scenario the RBNZ is likely to do a “one and done” action and leave stationary for the foreseeable future.

The upbeat data from New Zealand helped push kiwi towards the 7250 mark, but Aussie saw no such interest from investors as the pair drifted lower towards 7613 before finally finding some buyer. Australian Building Approvals data sank -8.7% versus -3.0% eyed as the housing market Down Under is clearly cooling.

The divergence between the two antipodeans sent AUD/NZD lower by more than 100 points and the pair now eyes the 1.0500 level as the next area of attack for the bears.

Meanwhile the dollar continues to be hammered on US election concerns. The tightening of the race and renewed momentum by the Trump campaign has global investors greatly worried. EUR/CHF hit a four month low in early European trade today as the Swissie becomes the safe haven harbor trade amidst the political uncertainty.

There is no doubt that market jitters have amplified over the past few days as US election has now taken center stage in all the capital markets and focus turns to the polls as much as to the economic data. Against that backdrop today’s FOMC statement should be particularly newsworthy as markets participants will look for any clues about a December rate hike. Almost no one expects the Fed to surprise the market with a hike today, but of much greater interest will be any discussions of possible market volatility. The Fed appears to be committed to normalizing rates beginning in December but in the case of a Trump victory all bets could be off especially if capital markets go into spin dive by then, which is why any hedging by the Fed today will likely push the dollar lower as the day progresses.

Boris Schlossberg
Managing Director

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